Russia earlier unveiled the key plank of its retaliation against the ‘stage three’ EU sanctions confirmed last week. It has said that it will now ban all imports of fruit, veg, meat (including fish) and dairy products from the EU (as well as the US, Australia, Canada and Norway).
How will this impact Europe?
This helpful factsheet gives an idea of the overall level of EU agricultural exports to Russia. As the box above shows, agricultural exports are about 7% of total EU exports. Of this, 10% goes to Russia. This means that agricultural exports account for around 0.7% of overall EU exports – it’s important to remember that this figure includes much more than the specific parts targeted in the sanctions.
In terms of specific countries, the chart below highlights that the Baltic countries (Latvia, Lithuania and Estonia) will be hardest hit – in terms of the trade as a share of GDP. In absolute terms, Poland, the Netherlands, Germany and Denmark will also face losses.
How will this impact Russia?
Well, as has already been pointed out, the likely fallout will be higher prices for Russian consumers (driving up inflation more broadly) and reduced consumer choice. As we pointed out previously, Russia does import some agricultural products but only to the tune of around 1.2% GDP per year. This is dwarfed by some of its other imports.
That said, it still accounts for some 13.3% of overall imports. This is a sizeable chunk of imports to replace, but Russia has a few options:
- Expand domestic production. Not impossible given the natural resources and land at Russia’s disposal as well as the state’s resources (although these could take a hit from the escalating sanctions). In terms of security this has long been on Russia’s list of things to move towards.
- Expand production with Eurasian partners. As part of its ongoing response to the crisis Russia is deepening links with surrounding states and specifically members of the fledgling Eurasian Union. Some of these states will have significant agricultural sectors, although they will unlikely be quickly able to help supply a country the size of Russia.
- Look farther afield. Rumours of Russia trying to strike agricultural deals with Latin America abound, while (as is always the case these days) Russia will likely look to China for support. This would obviously undermine any attempt to increase food security, however, would help limit the economic impact.
Does this set the scene for a broader trade war?
Hopefully, not yet. The sanctions on both sides remain quite targeted and specific. That said, it’s hard to see how either side could easily change position. That is feeding into a broader feeling of unease when it comes to the private sectors of both sides doing business together. This indirect or de facto halting of trade is likely to be the largest negative effect from this escalation.